The Swiss Re Institute has just released its annual outlook for the insurance industry, the World Insurance Sigma report. Researchers find that the resilience of the global economy bodes well for both property and casualty insurers and life insurers.
“The insurance industry has reached a new equilibrium after the challenges of recent years. The global economy has surprised on the upside, which should drive more demand for insurance. The life sector in particular is one to watch, as higher interest rates drive investment income and consumer demand for annuities, giving more people secure retirement incomes,” says Jérôme Haegeli, Group Chief Economist at Swiss Re.
In 2024, researchers at the Institute estimate that the overall premium volume growth for all insurers will be 3.2 per cent, bringing the market to USD 7.6 trillion (all figures in USD), combining both property and casualty and life insurance sectors.
In 2025, premium growth will be limited to 2.6 per cent, they predict. Growth was 2.8 per cent in 2023, according to the Institute.
Combining total premiums in the two segments, the top ten markets for insurers in 2023 were as follows, according to the Institute’s estimates:
The top 20 countries for insurers represented 91 per cent of total premium volume across all sectors in 2023, in a market totalling USD 7.2 trillion.
Macroeconomic overview
The Institute predicts that the summer of 2024 will be the turning point for the central bank policy rates of the most economically advanced countries. The gap between short-term and long-term bond rates is widening, necessitating adjustments for monetary policy managers.
The persistent strength of the US dollar, energy prices, and food costs are all factors putting significant pressure on emerging economies. However, researchers do not foresee a debt crisis in the most vulnerable countries.
“Finally, the term premium—the extra compensation required by investors to bear the duration risk—is likely to rebuild as monetary policy returns to a neutral stance.”
“Concerns about long-run fiscal sustainability have reignited in recent years. Pre-existing structural pressures on public finances related to growing entitlment spending amid aging demographics were accentuated by the massive spending during the pandemic, and now there is a growing need for significant public sector investment in building green, economically sustainable infrastructure, and in supply chain resilience,” the Institute writes.
Authors also note that over the past 30 years, the average annual growth of global real GDP has been 2.7 per cent, while losses associated with natural disasters have risen by 5.9 per cent per year.
Consequently, if the trend continues as the Institute predicts, the gap between insured damages and uninsured losses is likely to widen further.
Property and casualty insurance
For property and casualty insurers, the Institute’s report highlights that premium increases have become necessary in recent years due to high claims cost inflation.
In 2023, premiums rose by 3.9 per cent for all property and casualty insurers, compared to 0.8 per cent in 2022. The global market was approximately USD 4.3 trillion at the end of 2023.
In 2024, premium volume is expected to grow by 3.3 per cent, reaching USD 4.6 trillion. Growth will be more modest in 2025, at 2.6 per cent, bringing the market to USD 4.8 trillion in premiums in 2025.
In personal lines, rates will rise by 5 per cent in 2024 before moderating to 3 per cent in 2025, according to the Institute’s analysts.
In commercial insurance, rates continue to rise, at 2 per cent in 2024 and 2025, but at a slower pace due to increased competition in some markets. However, a major catastrophe could alter this trend.
The return on capital for property and casualty insurers averages 10 per cent at this time in the eight major markets worldwide, compared to 6 per cent in 2023. The Institute expects the rate to remain above 10 per cent through 2025.
“Commercial insurance accounts for almost half of the total property and casualty market,” says Kera McDonald, Head of Underwriting at Swiss Re Corporate Solutions. “We expect commercial P&C carriers to maintain profitability in 2024, as rate trends have enabled lines like property to stay sustainably priced. The industry has seen single-digit rate increases for property business written this year. On the casualty side, we observe a trend of general market softening across most long tail lines.”
From 2020 to 2023, the Institute notes that property and casualty insurance premium costs have risen faster than disposable income in the six largest markets. The decreased affordability of property and casualty insurance is not good news for the industry, as these additional expenses impact consumers’ savings capacity.
Life insurance
“The life insurance sector in advanced markets has been in the doldrums on account of the very low interest rate environment that ran from the time of the global financial crisis (2008-2009) until after 2021. Now, the sector is back in business,” note the Sigma report authors.
In life insurance, the report indicates that premium growth will reach 2.9 per cent by the end of 2024, bringing the total volume to USD 3 trillion in premiums. Expected growth in 2025 will be 2.7 per cent.
Premium growth was only 1.3 per cent in 2023. In 2022, the industry even experienced a 3.8 per cent decline.
“A significant growth area for life insurance is the uptake of annuities to boost retirement savings. In the United States, for example, sales of fixed-rate annuities jumped 63 per cent in 2022 and 36 per cent in 2023. Longer term, advanced markets are expected to contribute half of all additional premium over the next 10 years, driven by strong growth in annuities,” Swiss Re predicts.
Annual average premium growth of 2.5 per cent is expected through 2034, bringing the market to USD 4.7 trillion in premiums.
